8-i 

CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

TABLE OF CONTENTS

8.1 INTRODUCTION ........................................................................................................... 8-1

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analysis ................ 8-1

8.1.2 Overview of Life-Cycle Cost and Payback Period Inputs ................................... 8-4

8.2 LIFE-CYCLE COST INPUTS ........................................................................................ 8-7

8.2.1 Definition ............................................................................................................. 8-7

8.2.2 Total Installed Cost Inputs ................................................................................... 8-7

8.2.2.1 Baseline Manufacturer Selling Price ....................................................... 8-8

8.2.2.2 Efficiency Level Energy Consumption and Manufacturer Selling Price 

Increases ............................................................................................................. 8-11

8.2.2.3 Overall Markup ...................................................................................... 8-12

8.2.2.4 Installation Cost ..................................................................................... 8-13

8.2.2.5 Weighted-Average Total Installed Cost................................................. 8-14

8.2.3 Operating Cost Inputs ........................................................................................ 8-17

8.2.3.1 Electricity and Natural Gas Price Analysis ............................................ 8-17

8.2.3.2 Electricity and Natural Gas Price Trend ................................................ 8-21

8.2.3.3 Repair Cost............................................................................................. 8-23

8.2.3.4 Maintenance Cost................................................................................... 8-25

8.2.3.5 Lifetime .................................................................................................. 8-25

8.2.3.6 Discount Rate ......................................................................................... 8-26

8.2.3.7 Compliance Date of Standard ................................................................ 8-28

8.2.3.8 Base-Case Distribution of Efficiency Levels ......................................... 8-28

8.3 PAYBACK PERIOD INPUTS ...................................................................................... 8-29

8.3.1 Definition ........................................................................................................... 8-29

8.4 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS ...................................... 8-30

8.4.1 Life-Cycle Cost Results ..................................................................................... 8-30

8.4.2 Payback Period Results ...................................................................................... 8-32

8.4.3 Rebuttable Presumption Payback Period ........................................................... 8-33

8.5 DETAILED RESULTS ................................................................................................. 8-34

REFERENCES ......................................................................................................................... 8-36
8-ii

LIST OF TABLES

Table 8.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost and 

Payback Period..................................................................................................... 8-6

Table 8.1.2 Electricity Use in SPVAC <65 kBtu/h by Efficiency Level in Education, 

Telecommunications, and Office Buildings, U.S. Average Climate Conditions . 8-7

Table 8.2.1 Inputs for Total Installed Costs ................................................................................. 8-8

Table 8.2.2 Equipment Classes Evaluated for the SPVU Equipment Standard Life-Cycle Cost 

and Payback Period Analysis ............................................................................... 8-8

Table 8.2.3 Baseline Energy Consumption Levels and MSP Values for the Representative SPVU 

Equipment Units of Four Equipment Classes Analyzed.................................... 8-11

Table 8.2.4 Standard-Level Manufacturer Selling Price Increases ............................................ 8-11

Table 8.2.5 U.S. Average Electricity Consumption Values for Representative SPVU Equipment 

Units, by Building Usage Type, at All Efficiency Levels Analyzed ................. 8-12

Table 8.2.6 Weighted Average Baseline Installation Costs by Equipment Class ..................... 8-13

Table 8.2.7 Installation Cost Indices (National Value = 100.0) ............................................... 8-14

Table 8.2.8 Costs and Markups for Determination of Weighted-Average Total Installed Costs for 

New Equipment, SPVAC <65,000 Btu/h Equipment Class* ............................ 8-15

Table 8.2.9 Weighted-Average Equipment Price, Weighted Installation Cost, and Total Installed 

Costs for SPVAC <65,000 Btu/h at U.S. Average Conditions (2013$)* for 

Temporary Offices ............................................................................................. 8-17

Table 8.2.10 Inputs for Operating Costs .................................................................................... 8-17

Table 8.2.11 Commercial Electricity Prices by State (2013 cents/kWh) .................................. 8-19

Table 8.2.12 Commercial Natural Gas Prices by State (2013$ per Million Btu) ...................... 8-19

Table 8.2.13 Derived Average Commercial Energy Prices by Business Type ......................... 8-20

Table 8.2.14 Shares of SPVU Market by Business/Building Type ........................................... 8-21

Table 8.2.15 Population Shares by State, 2013 ......................................................................... 8-21

Table 8.2.16 Annualized Repair Costs by Equipment Class for Each Efficiency Level ........... 8-24

Table 8.2.17 Annualized Maintenance Costs by Equipment Class for Each Efficiency Level . 8-25

Table 8.2.18 Derivation of Average Real Discount Rates by Business Type ........................... 8-28

Table 8.2.19 Base-Case Distribution of Efficiency Levels for SPVU Equipment in 2019 ....... 8-29

Table 8.4.1 LCC Savings Distribution Results for Equipment Class SPVAC <65,000Btu/h 

(2013$) ............................................................................................................... 8-32

Table 8.4.2 Mean LCC Savings for All Equipment Classes and Efficiency Levels ................. 8-32

Table 8.4.3 Median LCC Savings for All Equipment Classes and Efficiency Levels .............. 8-32

Table 8.4.4 Payback Period Distribution Results for SPVAC <65,000 Btu/h .......................... 8-33

Table 8.4.5 Median Payback Period for All Equipment Classes and Efficiency Levels ........... 8-33

Table 8.4.6 Rebuttable Presumption Payback Periods by Efficiency Level and Equipment Class

............................................................................................................................ 8-34

Table 8.5.1 Summary of Results of LCC and PBP Analysis for SPVAC <65,000 Btu/h 

Equipment Class ................................................................................................ 8-35
8-iii

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and Payback 

Period ................................................................................................................... 8-5

Figure 8.2.1 Historical Nominal and Deflated Producer Price Indexes for Miscellaneous 

Refrigeration and Air-Conditioning Equipment .................................................. 8-9

Figure 8.2.2 Historical Deflated Producer Price Indexes for Copper Smelting, Steel Mills 

Manufacturing and All Other Miscellaneous Refrigeration and Air-Conditioning 

Equipment .......................................................................................................... 8-10

Figure 8.2.3 Electricity Price Trends for Commercial Rates to 2047 ........................................ 8-22

Figure 8.2.4 Natural Gas Price Trends for Commercial Rates to 2047 ..................................... 8-23

Figure 8.4.1 LCC and Installed Cost Variation over Efficiency Levels for SPVAC <65,000 Btu/h 

Equipment Class ................................................................................................ 8-30

Figure 8.4.2 LCC Savings Distributions for All the Efficiency Levels for the Equipment Class 

SPVAC <65,000 Btu/h ...................................................................................... 8-31

Figure 8.4.3 Payback Period for All Efficiency Levels for the Equipment Class SPVAC <65,000 

Btu/h ................................................................................................................... 8-33
8-1 

CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 INTRODUCTION

This chapter describes the analysis that the U.S. Department of Energy (DOE) has 

performed to evaluate the economic impacts of possible energy conservation standards 

developed for single package vertical air conditioners and heat pumps (SPVU equipment) on 

individual commercial customers, henceforth referred to as customers. The effect of standards on 

customers includes a change in operating cost (usually decreased) and a change in installed cost 

(usually increased). This chapter describes two metrics used to determine the effect of standards 

on customers: 

• Life-cycle cost (LCC). The total customer cost over the life of the equipment is the 

sum of installed cost (purchase and installation costs) and operating costs 

(maintenance, repair, and energy costs). Future operating costs are discounted to the 

time of purchase, and summed over the lifetime of equipment. 

• Payback period (PBP). Payback period is the estimated amount of time it takes 

customers to recover the assumed higher purchase price of more energy efficient 

equipment through lower (undiscounted) operating costs. 

An efficiency improvement to SPVU equipment that is financially attractive to a 

customer will typically be associated with a short PBP and a reduced LCC (i.e., LCC savings). 

This chapter is organized as follows. The remainder of this section outlines the general 

approach and provides an overview of the inputs to the LCC and PBP analysis of SPVU

equipment. Inputs to the LCC and PBP analysis are discussed in detail in sections 8.2 and 8.3. 

Results for the LCC and PBP analysis are presented in sections 8.4 and 8.5. 

The calculations discussed in this chapter were performed with Microsoft Excel 

spreadsheets available at 

http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/35. 

Appendix 8A provides instructions for using the LCC spreadsheet. Detailed LCC and PBP 

results are presented in appendix 8B. Impacts of high growth and low growth scenarios for 

energy prices are presented in appendix 8C. Appendix 8D describes the percentages of 

equipment by efficiency level that would be purchased in the absence of standards (base-case 

market scenario). 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analysis 

This section summarizes DOE’s approach to the LCC and PBP analysis for SPVU

equipment. As part of the engineering analysis, various efficiency levels are ordered based on

increasing efficiency (decreased energy consumption) and, typically, increasing manufacturer 

selling price (MSP) values. For the LCC and PBP analysis, DOE chose five levels, henceforth 

referred to as efficiency levels. DOE treats each higher efficiency level (efficiency levels above 

the baseline) as a potential new standard level. For this notice of proposed rulemaking (NOPR), 

trial standard levels (TSLs) and efficiency levels (ELs) have a one-to-one correspondence. For 

example, TSL 1 calls for EL 1 equipment, TSL 2 calls for EL 2 equipment, and so on. 
8-2 

The LCC analysis of SPVU equipment is being conducted to help determine if DOE 

should adopt an efficiency standard more stringent than the American Society of Heating, 

Refrigerating and Air-Conditioning Engineers (ASHRAE) standard level discussed in earlier 

chapters. The baseline efficiency level is the ASHRAE 90.1-2013 standard for each equipment 

class (also see section 8.1.2). It is the least efficient and the least expensive equipment in that 

class. The higher efficiency levels (level 1 and up) have a progressive increase in efficiency and 

equipment cost from the baseline level. The highest efficiency level in each equipment class 

corresponds to the maximum efficiency level obtainable with non-proprietary technology (see 

the technical support document (TSD) chapter 5 for details). DOE treats the efficiency levels as

trial standard levels, as each higher efficiency level represents a potential new standard level. 

The installed cost of equipment to a customer is the sum of the equipment purchase price 

and installation costs. The purchase price is established starting from the manufacturer 

production cost (MPC), to which a manufacturer markup and cost of delivery to the job site are

applied to obtain the MSP. This value is calculated as part of the engineering analysis (chapter 5 

of the TSD). DOE then applies additional markups to the equipment to account for the markups 

associated with the distribution channels for this type of equipment (chapter 6 of the TSD) to 

arrive at the final customer price. Installation costs vary by state depending on the prevailing 

labor rates. 

Operating costs for SPVU equipment are a sum of maintenance costs, repair costs, and 

energy costs. These costs are incurred over the life of the equipment and therefore are discounted 

to the year 2019 which is the effective date of the standards that will be established as part of this 

rulemaking. The sum of the installed cost and the operating cost, discounted to reflect the present 

value, is termed the life-cycle cost or LCC.

Generally, customers incur higher installed costs when they purchase higher efficiency 

equipment, and these cost increments will be partially or wholly offset by savings in the 

operating costs over the lifetime of the equipment. Usually, the savings in operating costs are due 

to savings in energy costs because higher efficiency equipment uses less energy over the lifetime 

of the equipment. Often, the LCC of higher efficiency equipment is lower compared to the LCC 

of lower efficiency equipment. LCC savings are calculated for each efficiency level of each 

equipment class.

The PBP of higher efficiency equipment is obtained by dividing the increase in the 

installed cost by the decrease in annual operating cost. For this calculation, DOE uses the sum of 

the changes in the first year operating costs as the estimate of the decrease in operating cost, 

noting that some of the repair and replacement costs used herein are annualized estimates of 

costs. PBP is calculated for each efficiency level of each equipment class. 

Apart from MSP, installation costs, and maintenance and repair costs, other important 

inputs for the LCC and PBP analysis are markups and sales tax, equipment energy consumption, 

electricity prices and future price trends, equipment lifetime, and discount rates. 

The inputs for the LCC and PBP analysis are estimated from the best available data in the 

market, and in some cases the inputs are generally accepted values in the HVAC equipment 

industry. In general, there is uncertainty associated with most of the inputs because it is difficult 
8-3 

to develop an accurate representative value for some inputs. Therefore, DOE carried out the LCC 

and PBP analysis in the form of Monte Carlo simulations in which certain inputs were provided a 

range of values and probability distributions that account for the uncertainties. The results of the 

LCC and PBP analysis are presented in the form of mean and median LCC savings, percentages 

of customers experiencing net savings, net cost, no impact in LCC, and median PBP. For each 

equipment class, 10,000 Monte Carlo simulations were carried out. The simulations were 

conducted using Microsoft Excel and Crystal Ball, a commercially available Excel add-in for 

doing Monte Carlo simulations 

DOE calculated LCC savings and PBP by comparing the installed costs, operating costs,

and LCC values of a standards-case scenario against those of base-case scenario. The base-case 

market scenario is the scenario in which equipment is assumed to be purchased by customers in 

the absence of the proposed energy conservation standards. The base-case market scenario is 

shown in section 8.2.3.8 and its derivation is further described in appendix 8D. Standards-case 

scenarios are scenarios in which equipment is assumed to be purchased by customers after the 

hypothetical energy conservation standards, determined as part of the current rulemaking, go into 

effect. The number of standards-case scenarios for an equipment class is equal to one less than 

the total number of efficiency levels in that equipment class because each efficiency level above 

the ASHRAE baseline level represents a potential new standard. Usually, the equipment 

available in the market will have a distribution of efficiencies. Therefore, for both base-case and 

standards-case scenarios in the LCC and PBP analysis, DOE assumed a distribution of 

efficiencies in the market, and the distribution was assumed to be spread over the first few 

efficiency levels in the LCC and PBP analysis (see appendix 8D). 

Recognizing considerable variation in how commercial buildings use SPVU equipment, 

DOE analyzed variability and uncertainty by performing the LCC and PBP calculations for three

types of buildings (1) modular relocatable school classrooms or “portables,” (2)

telecommunications equipment shelters, and (3) modular and miscellaneous commercial and 

government office and retail buildings. Different types of businesses face different energy prices 

and also exhibit differing discount rates that they apply to purchase decisions. Five types of 

businesses were analyzed: (1) health care; (2) education; (3) mining, construction, and other 

entities requiring temporary office space; (4) telecommunications; and (5) general office, retail, 

and government. 

Equipment lifetime for SPVU equipment is another input that does not justify usage of 

one single value for each equipment class. Therefore, for purposes of the LCC analysis, DOE 

assumed a distribution of equipment lifetimes between 10 and 25 years that are defined by

Weibull survival functions, with an average value of 15 years. 

Another important factor influencing the LCC and PBP analysis is the location in which 

the SPVU equipment is installed. Inputs that vary based on this factor include energy 

consumption, energy prices, markups and installation costs, and sales tax. At the national level, 

the LCC spreadsheet explicitly modeled variability in the model inputs for these factors using 

probability distributions based on the relative populations in different states and percent of the 

market in particular business types. 
8-4 

Results of the LCC and PBP analysis are presented in section 8.4 and in appendix 8B. 

Impacts of high growth and low growth energy price scenarios on LCC and PBP are presented in 

appendix 8C.

8.1.2 Overview of Life-Cycle Cost and Payback Period Inputs

Inputs to the LCC and PBP analysis are categorized as follows: (1) inputs for establishing 

the total installed cost and (2) inputs for calculating the operating cost.

The primary inputs for establishing the total installed cost are as follows: 

• Baseline manufacturer selling price is the price charged by the manufacturer to either 

a wholesaler or customer for equipment meeting baseline efficiency level. The MSP

includes a manufacturer’s markup and transportation, which converts the MPC to

MSP. These values are calculated in TSD chapter 5.

• Price learning is a method of adjusting the MSP across time to account for increased 

efficiency in the production of SPVU equipment. It is assumed in DOE SPVU LCC 

analyses that the real cost of producing equipment will stay constant over time. This 

is discussed in section 8.2.2.1 and appendix 8D. 

• Efficiency level manufacturer selling price increase is the incremental change in MSP

associated with producing equipment at each of the higher efficiency levels

(efficiency levels above the baseline). 

• Markups and sales tax are the distribution channel markups and sales tax associated 

with converting the MSP to a customer purchase price. Figure 8.1.1 depicts these 

generically. The methodology to determine markups and sales taxes is presented in 

TSD chapter 6. 

• Installation cost is the cost to the customer of installing the equipment. The cost for 

installation is estimated as a one-time cost and is intended mainly to represent the cost 

of labor. Installation overhead and other miscellaneous materials and parts are 

considered part of the installation cost. 

The primary inputs for calculating the operating costs are as follows: 

• Equipment energy consumption: Consumption is the total annual energy consumed by

SPVU equipment. This includes electricity in kilowatt-hours and natural gas in 

millions of British thermal units (MBtu) where applicable. This value is calculated as 

part of the engineering analysis for each efficiency level in each equipment class. 

• Electricity and natural gas prices: Electricity prices used in the analysis are the price 

per kilowatt-hour paid by each customer for electricity. Natural gas prices are 

expressed in dollars per MBtu. Electricity and natural gas prices are determined using 

average commercial electricity and natural gas prices in each state from the U.S. 

Energy Information Administration (EIA) data for 2013 The derived 2013 average 

commercial prices were modified to reflect the fact that the five types of businesses 

analyzed pay electricity and natural gas prices that are different from the average 

commercial prices. Details on the development of electricity and natural gas prices 

and the data sources used are found in section 8.2.3.1. 
8-5 

• Electricity and natural gas price trends: The EIA’s Annual Energy Outlook 2013 

(AEO2013)

1

 is used to project electricity and natural gas prices. For the results 

presented in this chapter, DOE used the regional prices from the AEO2013 Reference 

Case to project future trends in electricity and natural gas prices. 

• Maintenance costs: Estimated as an annual expense, derived from RS Means 

CostWorks2 data, representing the labor and materials costs associated with 

maintaining the operation of the equipment. Maintenance includes activities such as 

cleaning heat exchanger coils, checking refrigerant charge levels, and replacing 

filters, and other routine measures to keep the equipment running efficiently. 

• Repair costs: The cost for repairs is estimated as an annualized expense, from RS 

Means CostWorks data, derived to represent the labor and materials costs associated 

with repairing or replacing components that have failed.

• Equipment lifetime: The age at which the SPVU equipment is retired from service.

• Discount rate: The rate at which future costs are discounted to establish their present 

value. It is calculated as the weighted-average cost of capital (WACC) for each of the 

five types of businesses assumed to be in commercial space served by SPVU

equipment. 

Figure 8.1.1 depicts the relationships between the installed cost and operating cost inputs 

for the calculation of the LCC and PBP. Table 8.1.1 summarizes the characteristics of the inputs 

to the LCC and PBP analysis and lists the corresponding reference chapter in the TSD for details 

on the calculation of the inputs. 

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and Payback 

Period

Experiential 

Learning input

Baseline 

Manufacturer 

Selling Price

Std-Level 

Manufacturer 

Selling Price

Installation Cost

From Engineering Analysis(price 

is a function of efficiency)

From Markups for Equipment 

Price Determination Analysis 

Repair Cost

Maintenance 

Cost

Lifetime

Discount Rate

Electricity Price 

Trends

From Energy Use Analysis Energy 

Consumption

Electricity Prices

Sales Tax

Markups for:

• AC Wholesale

• Bldg Mfg

• Bldg Distrib

• Mech. Contr

• Gen. Contr

Customer Price

Data Inputs

Intermediate Analysis

Output Results

Total Installed 

Cost

Annual Energy 

and Water Cost

Annual

Operating

Expense

Lifetime 

Operating 

Expense

Payback Period Life-Cycle Cost
8-6 

Table 8.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost and 

Payback Period

Input Description TSD Chapter

Reference

Total Installed Cost Primary Inputs

Baseline MSP Varies with equipment class. Chapter 5

Efficiency level MSP 

increases

Varies with equipment class and efficiency level within an equipment 

class. Chapter 5 

Markups and sales tax Varies with location (state) where equipment is installed. Chapter 6

Installation price Varies with equipment class location (state) where equipment is installed. Chapter 8

Operating Cost Primary Inputs

Equipment energy 

consumption

Varies with equipment class and efficiency level within an equipment 

class. Chapter 7 

Electricity and natural 

gas prices Varies with location, type of business. Chapter 8 

Electricity and natural 

gas price trends Varies with location (regional) and price scenario. Chapter 8 

Maintenance costs Varies with location. Chapter 8

Repair costs Varies with equipment class and efficiency level within equipment class 

and location. Chapter 8 

Lifetime Mean assumed to be 15 years. Chapter 8

Discount rate Varies with type of business. Chapter 8

All of the inputs depicted in Figure 8.1.1 and summarized in Table 8.1.1 are discussed in 

sections 8.2 and 8.3. 

If DOE adopts more-stringent standard levels than the levels contained in the amended 

ASHRAE Standard 90.1-2013, compliance is required 4 years after the final rule is published. 

Based on a publication in 2015 for a final rule, the expected year of compliance would be 2019. 

For purposes of comparing different efficiency levels for the LCC analysis, it is assumed that the 

year of sale for the SPVU equipment is 2019. 

As an example, Table 8.1.2 shows the five efficiency levels for the single package 

vertical air conditioner (SPVAC) <65 thousand British thermal units per hour (kBtu/h) 

equipment class, obtained from the engineering analysis (ASHRAE plus four additional 

numbered levels). This table represents the current (2014) technology levels modeled for 

SPVAC <65 kBtu/h equipment on the market. As previously explained, DOE assumed that the 

ASHRAE standard would represent the minimum efficiency level of the market for this unit and 

that it would remain so. To approximate this state of market technology, DOE assumed the 

efficiency levels shown in Table 8.1.2 for SPVAC <65 kBtu/h equipment in U.S. average climate 

conditions. Table 8.1.2 also shows electricity consumption for this SPVAC unit in the three types 

of buildings included in the energy use analysis. The average change in natural gas consumed in 

a typical building as a result of the increased air-conditioning efficiency in this rulemaking is 

very small (0 to 1 MBtu per year) (see TSD chapter 7). It is ignored in Table 8.1.2. 
8-7 

Table 8.1.2 Electricity Use in SPVAC <65 kBtu/h by Efficiency Level in Education, 

Telecommunications, and Office Buildings, U.S. Average Climate Conditions 

Efficiency Level

Education 

Electricity 

Consumption 

kWh/yr*

Telecommunications 

Electricity 

Consumption 

kWh/yr

Office 

Electricity 

Consumption 

kWh/yr

ASHRAE Standard 5,633 8,217 4,008 

Level 1 5,415 7,827 3,875 

Level 2 5,216 7,473 3,755 

Level 3 4,949 6,998 3,593 

Level 4 4,775 6,686 3,487 

* kWh/yr is kilowatt-hours per year.

8.2 LIFE-CYCLE COST INPUTS

8.2.1 Definition

LCC is the total customer cost over the life of a unit of equipment, including purchase 

cost (equipment and installation costs) and operating costs (energy costs, maintenance costs, and 

repair costs). Future operating costs are discounted to the time of purchase and summed over the 

lifetime of the equipment. LCC is defined by Eq. 8.1: 

∑=

+= +

N

t

t

t ICLCC OC r

1

/( )1

 Eq. 8.1 

Where: 

LCC = life-cycle cost ($), 

IC = total installed cost ($), 

N = lifetime of equipment (years), 

OCt = operating cost ($) of the equipment in year t, 

r = discount rate, and

t = year for which operating cost is being determined.

Because DOE gathered most of its data for the LCC analysis in 2014, DOE expresses all 

costs in 2013$. In the LCC analysis, the first year of equipment purchase is assumed to be 2019. 

Total installed cost, operating cost, lifetime, and discount rate are discussed in the following 

sections. 

8.2.2 Total Installed Cost Inputs

The total installed cost to the customer is defined by Eq. 8.2: 
8-8 

IC EQP += INST 

Eq. 8.2 

Where: 

EQP = customer purchase price for the equipment ($), and

INST = installation cost or the customer price to install equipment ($).

The equipment price is based on the distribution channel through which the customer 

purchases the equipment, as discussed in TSD chapter 6. 

The remainder of this section provides information about the variables DOE used to 

calculate the total installed cost for SPVU equipment. Table 8.2.1 shows inputs for the 

determination of total installed cost. 

Table 8.2.1 Inputs for Total Installed Costs 

Baseline manufacturer selling price ($)

Price learning coefficient

Efficiency-level manufacturer selling price increases ($)

Distribution channel markup

Sales tax ($)

Installation cost ($)

8.2.2.1 Baseline Manufacturer Selling Price

The baseline MSP is the price charged by manufacturers for SPVU equipment for 

existing efficiency levels (for equipment classes with no standards). The MSP includes 

manufacturer markup and costs of transportation that are applied to convert the MPC to an MSP. 

DOE developed MSP values for the four equipment classes (see TSD chapter 3). Table 8.2.2

shows the set of four equipment classes that DOE evaluated during the NOPR analysis of the 

current rulemaking. 

Table 8.2.2 Equipment Classes Evaluated for the SPVU Equipment Standard Life-Cycle 

Cost and Payback Period Analysis 

Description (Equipment, Capacity) Abbreviation

SPVAC <65,000 Btu/h SPVAC <65 kBtu/h

SPVHP <65,000 Btu/h SPVHP <65 kBtu/h

SPVAC ≥65,000 Btu/h and <135,000 Btu/h SPVAC 65-135 kBtu/h

SPVHP ≥65,000 Btu/h and <135,000 Btu/h SPVHP 65-135 kBtu/h

* SPVHP is single package vertical heat pump.

DOE’s LCC analysis typically includes an allowance for equipment prices to change as 

experience is gained with manufacturing. To derive a price trend for SPVUs, DOE obtained 

historical Producer Price Index (PPI) data for all other miscellaneous refrigeration and airconditioning equipment spanning the time period 1990-2013 from the Bureau of Labor Statistics’ 

(BLS).a

 DOE used PPI data for all other miscellaneous refrigeration and air-conditioning 

 

a

 Series ID PCU3334153334159; http://www.bls.gov/ppi/ 
8-9 

equipment as representative of SPVUs because PPI data specific to SPVUs are not available. The 

PPI data reflect nominal prices, adjusted for product quality changes. An inflation-adjusted 

(deflated) price index for all other miscellaneous refrigeration and air-conditioning equipment 

was calculated by dividing the PPI series by the Gross Domestic Product Chained Price Index 

and is presented in 2013 dollar values in Figure 8.2.1. 

Figure 8.2.1 Historical Nominal and Deflated Producer Price Indexes for Miscellaneous 

Refrigeration and Air-Conditioning Equipment 

 From 1990 to 2004, the deflated price index for all other miscellaneous refrigeration and 

air-conditioning equipment showed a downward trend. From 2004 to 2009, the index has risen 

sharply, primarily due to rising prices of copper and steel products that go into SPVUs (see 

Figure 8.2.2). The rising prices for copper and steel products were primarily a result of strong 

demand from China and other emerging economies. Given the slowdown in global economic 

activity starting in 2008, DOE believes that the extent to which the trends of the past couple of 

years will continue is very uncertain. DOE performed an exponential fit on the deflated price 

index for all other miscellaneous refrigeration and air-conditioning equipment (see TSD 

appendix 10B), but the statistical fit was relatively low, which indiates a poor fit to the data. 

DOE also considered the experience curve approach, in which an experience rate parameter is 

derived using two historical data series on price and cumulative production, but the time series 

for historical shipments was not available. 

Given the above considerations, DOE decided to use a constant price assumption to 

project future SPVU prices in 2019. Thus, prices projection for the LCC and PBP analysis are 

equal to the 2013 values for each efficiency level in each equipment class.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

1989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013

Deflated PPI (2013=1)

Nominal PPI (1989=100)

Nominal Misc. Refrigeration and AC Equipment

Deflated Misc. Refrigeration and AC Equipment
8-10

Figure 8.2.2 Historical Deflated Producer Price Indexes for Copper Smelting, Steel Mills 

Manufacturing and All Other Miscellaneous Refrigeration and Air-Conditioning 

Equipment

Table 8.2.3 presents the baseline energy consumption values and the resulting baseline 

MSPs used in the LCC and PBP analysis for the representative sizes for each of the equipment 

classes (see TSD chapter 3). Because the analysis in this chapter is designed to help determine 

whether efficiency levels beyond the ASHRAE standard would be economically justified, the 

baseline was set at the ASHRAE standard baseline, as explained in section 8.1.2. 

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Deflated Commodity Price Index (2013=1)

Year

Iron and Steel Mills Primary Copper Smelting Misc. Refrigeration and AC Equipment
8-11

Table 8.2.3 Baseline Energy Consumption Levels and MSP Values for the Representative 

SPVU Equipment Units of Four Equipment Classes Analyzed

Equipment Class

Baseline Electricity Consumption kWh/yr

Manufacturer 

Selling Price 

2013$

Temporary 

Offices, 

General 

Offices, and 

Health Care

Education Telecommunic

ations

SPVAC <65 kBtu/h 4,008 5,633 8,217 1,891

SPVHP <65 kBtu/h 19,126 21,419 NA* 2,162

SPVAC 65-135 kBtu/h 7,820 11,091 16,412 2,483

SPVHP 65-135 kBtu/h 38,065 42,666 NA* 2,842

* Telecommunications shelters are assumed not to be heated, so air conditioning would be installed, but not heat 

pumps.

8.2.2.2 Efficiency Level Energy Consumption and Manufacturer Selling Price 

Increases

The MSP increase is the change in MSP associated with producing equipment at higher 

efficiency levels. Increases in MSP as a function of equipment efficiency were developed for 

each of the four equipment classes. The engineering analysis established a series of MSP 

increases for each standard level. Table 8.2.4 presents the increase in MSP corresponding to all 

efficiency levels for each equipment class. 

Table 8.2.4 Standard-Level Manufacturer Selling Price Increases

Equipment Class

Baseline 

(ASHRAE) 

MSP

MSP Increase by Efficiency Level 

2013$

Level 1 Level 2 Level 3 Level 4

SPVAC <65 kBtu/h 1,891 88 176 459 986 

SPVHP <65 kBtu/h 2,162 101 202 524 1,125 

SPVAC 65-135 kBtu/h 2,483 NA NA NA NA

SPVHP 65-135 kBtu/h 2,842 NA NA NA NA

Table 8.2.5 presents the annual electricity consumption of the representative units 

belonging to each of the four equipment classes that were selected for the engineering analysis.

On an average basis, the differences in natural gas consumption are very small, occur only in 

buildings with SPVAC units <65,000 kBtu/h, and occur only in about 11 percent of health care, 

education, and general office buildings. Telecommunications shelters and temporary offices are 

assumed to be all-electric buildings (see TSD chapter 7). 
8-12

Table 8.2.5 U.S. Average Electricity Consumption Values for Representative SPVU

Equipment Units, by Building Usage Type, at All Efficiency Levels Analyzed

Product Class

Annual Energy Consumption 

kWh/yr

Baseline 

(ASHRAE) Level 1 Level 2 Level 3 Level 4

Temporary Offices, General Offices, and Health Care 

SPVAC <65 kBtu/h 4,008 3,875 3,755 3,593 3,487

SPVHP <65 kBtu/h 19,126 18,707 18,457 17,656 17,550

SPVAC 65-135 kBtu/h 7,820 NA NA NA NA

SPVHP 65-135 kBtu/h 38,065 NA NA NA NA

Education

SPVAC <65 kBtu/h 5,633 5,415 5,216 4,949 4,775

SPVHP <65 kBtu/h 21,419 20,917 20,590 19,690 19,516

SPVAC 65-135 kBtu/h 11,091 NA NA NA NA

SPVHP 65-135 kBtu/h 42,666 NA NA NA NA

Telecommunications

SPVAC <65 kBtu/h 8,217 7,827 7,473 6,998 6,686

SPVAC 65-135 kBtu/h 16,412 NA NA NA NA

8.2.2.3 Overall Markup

Based on information from the Modular Building Institute,

3,4,5,6

 most of the temporary 

offices and many of the school portables are sold by modular building manufacturers to dealers, 

who then either sell or lease the buildings to the companies that occupy them, while the 

remainder are sold directly by the building manufacturer to the ultimate occupant (private 

company or government entity). Buildings may be leased several times in succession, and then 

sold in an active used market. The percentages of leased buildings and distribution among 

classes of occupants vary from year to year. The occupants of leased space typically pay both the 

electricity bill and a lease payment that pays for the dealer’s investment in the building, the 

general contractor costs for siting the building, and the dealer’s cost of maintaining the building. 

There appears to be widespread competition in the temporary building market, with the decision 

to lease or buy largely a matter of convenience for the building occupant. For purposes of the 

LCC analysis, DOE assumed that the cost of the SPVU equipment is imbedded in the purchase 

price of the relocatable building, including all applicable markups, and that the present value of 

the lease payment over the life of the building, where relevant, equals the occupant’s cost of 

buying and maintaining the building. Thus, the LCC analysis is not affected by whether the airconditioned building is owned by the occupant or is being leased. 

As discussed in TSD chapter 6, DOE calculated overall markups to determine the 

equipment purchase price to customers from the equipment MSP. DOE calculated baseline 

markups to convert baseline MSP to baseline customer purchase price and calculated incremental 

markups to convert the increments in MSP into increments in customer purchase price. DOE 

used these markup values in the LCC-PBP analysis for calculation of baseline and higher 

efficiency equipment price to customers. 
8-13

8.2.2.4 Installation Cost 

Most SPVU equipment is sold to manufacturers of portable buildings that use such 

equipment, rather than being separately installed in the field at the end-use location. The 

principal exceptions are sales of replacement equipment where the SPVU has failed prematurely. 

The “installation” cost for new equipment thus would be included in the markup of the modular 

building manufacturer. Although some SPVU equipment in replacement applications is not 

installed in standard configurations, which complicates estimating the cost of installation, some 

standardized estimates do exist. The estimated installation cost is designed to represent a onetime fixed cost, to incorporate the labor and overhead required to fully replace SPVU equipment 

of various capacities. DOE utilized replacement cost data from RS Means CostWorks 2014 for 

single-zone rooftop air conditioners to derive installation cost curves for SPVU equipment by 

capacity of the unit measured in tons of unit for the base efficiency unit. (One ton of cooling 

capacity equals 12,000 Btu/h.) Installation costs were available for 3-ton units. The costs for 

installing 6-ton units were interpolated linearly from installation costs for 5-ton and 7.5-ton units 

reported by RS Means CostWorks. 

One additional adjustment was made. The installation cost must represent an average of 

both replacement installations (which incur installation costs) and new building installations 

(which come with the SPVU equipment installed and therefore do not incur separate installation 

costs). Therefore, the installation costs derived from RS Means CostWorks were adjusted 

downward so that the average cost represented only replacement applications. The average costs 

were obtained by multiplying the estimated installation cost by the proportion of SPVU 

equipment that the manufacturers estimated was shipped for replacements. For the NOPR

analysis, DOE assumed that the engineering design options do not significantly affect installation 

labor within an equipment class, and therefore, within given equipment class the installation cost 

will not vary with efficiency levels, though installation cost may still vary from one equipment 

capacity or equipment class to another. DOE did not find any information that suggests 

installation costs change as efficiency changes. If installation costs do not vary with efficiency 

levels, they do not affect the LCC, PBP, or national impact analysis results. The installation costs

in the NOPR analysis are estimated very simply as a fixed value for each equipment class and 

capacity. To allow for the possibility that installation cost could increase as a function of 

increased efficiency within an equipment class, DOE designed an option into the LCC 

spreadsheet such that installation costs can be varied by efficiency level, but for the NOPR 

analysis DOE has modeled installation cost as constant across efficiency. Table 8.2.6 shows the 

average values for baseline installation costs. 

Table 8.2.6 Weighted Average Baseline Installation Costs by Equipment Class 

Equipment Class

Installation 

Cost 

2013$

SPVAC <65 kBtu/h 1,252

SPVHP <65 kBtu/h 1,252

SPVAC 65-135 kBtu/h 2,006

SPVHP 65-135 kBtu/h 2,006

Table 8.2.7 shows installation cost indices for installations in each of the 50 states and the 

District of Columbia, and weighted-average for the entire United States, which are used to adjust 
8-14

the nationally representative installation costs for each state. To arrive at an average index for 

each state, DOE first weighted the RS Means city-level cost indices in each state by their 

population within the state. DOE used city- and state-level population weights for 2012 and 

2013, respectively, from the U.S. Census Bureau7 to calculate a weighted-average index for each 

state. 

Table 8.2.7 Installation Cost Indices (National Value = 100.0) 

State Index State Index State Index

Alabama 82.5 Kentucky 95.2 North Dakota 87.4

Alaska 104.5 Louisiana 86.8 Ohio 99.3

Arizona 94.3 Maine 92.2 Oklahoma 84.6

Arkansas 83.8 Maryland 95.2 Oregon 103.7

California 112.9 Massachusetts 110.0 Pennsylvania 110.8

Colorado 93.2 Michigan 102.4 Rhode Island 110.8

Connecticut 109.2 Minnesota 107.5 South Carolina 83.7

Delaware 109.2 Mississippi 84.7 South Dakota 81.1

Dist. of Columbia 99.8 Missouri 102.2 Tennessee 92.4

Florida 88.5 Montana 91.4 Texas 85.2

Georgia 89.3 Nebraska 93.6 Utah 89.9

Hawaii 106.6 Nevada 101.7 Vermont 91.7

Idaho 91.9 New Hampshire 97.0 Virginia 91.2

Illinois 115.6 New Jersey 112.0 Washington 104.8

Indiana 94.2 New Mexico 90.7 West Virginia 99.0

Iowa 94.8 New York 126.4 Wisconsin 101.7

Kansas 91.1 North Carolina 83.8 Wyoming 88.3

8.2.2.5 Weighted-Average Total Installed Cost 

As presented in Eq. 8.2, the total installed cost is the sum of the equipment price and the 

installation cost. DOE derived the customer equipment price for any given standard level by 

multiplying the baseline MSP by the baseline markup and adding to it the product of the 

incremental MSP and the incremental markup. Because markups, sales tax, and installation costs 

all can take on a variety of values, depending on location, the resulting total installed cost for a 

particular standard level will not be a single-point value but rather a distribution of values. 

Because new SPVU units generally come to the customer already mounted, only the portion of 

the units that are sold as replacements incur separate installation charges, as discussed 

previously. During the manufacturer interviews, SPVU manufacturers estimated this portion as 

about 50 percent of the market. The portion of these replacement sales that go to modular 

building distributors for replacements in their leased units may not show an explicit installation 

cost, but since replacement installations are a cost of doing business, the final lease customer 

likely pays an allowance for repairs and replacements as part of the rental charge.

DOE used the baseline and incremental markups, the sales tax, and installation costs to 

convert the MSPs into total installed costs for a case where the incremental installation costs are 

held flat across efficiency levels. As an example of this procedure, Table 8.2.8 summarizes the 

weighted average or mean costs and markups necessary for determining the national weightedaverage baseline and standard-level total installed costs. 
8-15

Table 8.2.8 Costs and Markups for Determination of Weighted-Average Total Installed 

Costs for New Equipment, SPVAC <65,000 Btu/h Equipment Class* 

Variable Weighted Average or Mean 

Value

ASHRAE Baseline MSP $1,891 

Standard-Level MSP Increase (Efficiency Level 2) $176 

Overall Markup Factor–Baseline (Including National 

Average Sales Tax) 1.959

Overall Markup Factor–Incremental (Including 

National Average Sales Tax) 1.639

Average Installation Cost–Baseline $2,505

Weighted Average Installation Cost–Baseline $1,252

Installation Cost Factor, for U.S. Average 1.0

* Installation costs apply to the baseline unit with no incremental installation costs.

Note that the surveyed cost structured reflected the dominant technology currently on the 

market, which is based on Energy Policy and Conservation Act (EPCA) requirements. While 

comparison of LCC savings is done by using ASHRAE as a baseline, the cost build-up uses 

current technology as a starting point. Going from current technology to ASHRAE level 

constitutes an incremental efficiency improvement and, therefore, only an incremental cost 

increase to the manufacturers. To reflect that, the incremental markup is applied to the difference 

in MSP between current dominant technology (EPCA) and ASHRAE baseline. 

To illustrate the derivation of the weighted-average total installed cost (based on the data 

shown in Table 8.2.8) is evaluated in Eq. 8.3 for the baseline (ASHRAE standard level) and in

Eq. 8.4 for a higher efficiency level (Level 2) SPVAC <65,000 Btu/h equipment class. For the 

baseline product, the calculation of the total installed cost at national average conditions is as 

follows:b

ICBASEAC<65 = EQPBASE AC<65 + PCTREPL × INSTBASE AC<65 × ISTINDEX

= MFGBASE AC<65 × Price Learning CoefAnalysis Year × MUOVERALLBASE +

PCTREPL × INSTBASE AC<65 × ISTINDEX

Eq. 8.3 

Where: 

ICBASE AC <65 = total installed cost of SPVAC <65,000 Btu/h equipment at baseline efficiency 

level ($), 

EQPBASE AC <65 = equipment purchase price of SPVAC <65,000 Btu/h equipment at baseline 

efficiency level ($),

PCTREPL = percentage of units that are replacement units (assumed = 50%), 

INSTBASE AC <65 = installation cost of SPVAC <65,000 Btu/h equipment at baseline efficiency 

level ($),

MFGBASE AC<65 = MSP of SPVAC <65,000 Btu/h equipment at baseline efficiency level ($), 

 

b The numbers shown in Eq. 8.3 have been rounded and do not exactly match the numbers in the analysis.
8-16

MUOVERALL_BASE = overall baseline markup for equipment class SPVAC <65,000 Btu/h, 

ISTINDEX = location dependent multiplier on installation costs; approximately 1.0 at a national 

average, and 

Price Learning CoefAnalysis Year = price learning coefficient value for the year in which the unit is 

being purchased (assumed = 1.0 in 2019). 

The calculation of the total installed cost at higher efficiency levels includes the use of an 

MSP increment above the baseline MSP. DOE uses an incremental markup factor that applies to 

incremental increases in MSP. The equipment price is equal to the baseline price calculated in

Eq. 8.3, plus the MSP increment for a higher efficiency level multiplied by the incremental 

markup. 

As an example, DOE calculated the national average total installed cost (ICAC<65 LEVEL2) for 

a new SPVAC <65,000 Btu/h unit at Efficiency Level 2as follows:c

ICAC<65 LEVEL2 = EQPAC<65 LEVEL2 + PCTREPL × INSTAC<65 LEVEL2 × ISTINDEX

=

MFGBASE AC<65 × Price Learning CoefAnalysis Year × MUOVERALL_ BASE +

∆MFGAC<65 LEVEL2 × Price Learning CoefAnalysis Year × MUOVERALL_INCR + PCTREPL ×

INSTAC<65LEVEL2 × ISTINDEX 

Eq. 8.4 

Where: 

ICAC<65 LEVEL2 = total installed cost of SPVAC <65,000 Btu/h equipment at Efficiency Level 2 

($), 

EQP AC<65LEVEL2 = equipment price of SPVAC <65,000 Btu/h equipment at Efficiency Level 2 

($), 

PCTREPL = percentage of units that are replacement units, 

INST AC<65LEVEL2 = installation cost of SPVAC <65,000 Btu/h equipment at Efficiency Level 2 

($), 

ΔMFG AC<65LEVEL2 = incremental increase in MSP of SPVAC <65,000 Btu/h equipment at 

Efficiency Level 2 compared to equipment at baseline efficiency level ($), and

MU OVERALL_INCR = incremental markup for equipment class SPVAC <65,000 Btu/h. 

Table 8.2.9 presents the weighted-average equipment price, installation cost, and total 

installed costs for the SPVAC <65,000 Btu/h equipment class at the baseline level and each 

higher efficiency level examined. 

 

c Note that the numbers shown in Eq. 8.4 have been rounded and do not exactly match the numbers in the analysis.
8-17

Table 8.2.9 Weighted-Average Equipment Price, Weighted Installation Cost, and Total 

Installed Costs for SPVAC <65,000 Btu/h at U.S. Average Conditions (2013$)* for 

Temporary Offices

Efficiency Level Equipment Price (MSP) Weighted Installation Cost Total Installed Cost

Baseline (ASHRAE) $1,891 $1,252 $4,836

Level 1 $1,979 $1,252 $4,980 

Level 2 $2,067 $1,252 $5,125 

Level 3 $2,350 $1,252 $5,589 

Level 4 $2,877 $1,252 $6,453 

* Figures shown in the table were taken directly from the LCC analyses and thus can differ from those shown in the text due to 

the rounding issue mentioned in footnotes c and d.

8.2.3 Operating Cost Inputs

DOE defines the operating cost as the sum of energy cost, repair cost, and maintenance 

cost, as shown in the following equation: 

OC = EC + RC + MC

Eq. 8.5 

Where: 

OC = operating cost ($), 

EC = energy cost ($), 

RC = repair cost ($), and

MC = maintenance cost ($). 

The remainder of this section provides information about the variables that DOE used to 

calculate the operating cost for SPVU equipment. Table 8.2.10 shows the inputs for the 

determination of discounted operating costs (including discounted value and lifetime). 

Table 8.2.10 Inputs for Operating Costs 

Electricity price (cents/kWh)

Natural gas price ($/MBtu)

Electricity price trends

Natural gas price trends

Repair cost ($)

Maintenance cost ($)

Lifetime (years)

Discount rate (%)

Effective date of standard

Baseline electricity consumption (kWh/yr)

Baseline natural gas consumption (MBtu/yr)

Standard case electricity consumption (kWh/yr)

Standard natural gas consumption (MBtu/yr)

8.2.3.1 Electricity and Natural Gas Price Analysis

This section describes the electricity price and natural gas price analysis used to develop 

the energy portion of the annual operating costs (price multiplied by electricity consumption) for 
8-18

SPVU equipment used in different commercial building types. As noted earlier, three types of 

buildings were assumed: (1) modular relocatable school classrooms or “portables”; 

(2) telecommunications equipment shelters; and (3) modular and miscellaneous commercial and 

government office and retail buildings. Occupant categories were also used in the analysis. 

SPVU equipment was assumed to be used by the following: 

• health care operations for easy-to-erect supplemental facilities and office space; 

• school districts and colleges, mainly for “portables” at K-12 schools; 

• private telecommunications companies that need equipment shelters, many at remote 

sites such as cellular telephone and broadcast towers; 

• private companies with groups of employees housed in temporary or portable 

buildings (mainly in construction, mining, and communications for site offices); 

• private companies and state, local, and federal government agencies needing 

relatively low-cost general commercial office and retail space; and 

• private companies and government to provide temporary housing such as crew 

shelters (assumed to be at field sites—and assumed to have the same power cost as 

portable office space). 

Subdivision of the Country. Because of the wide variation in electricity consumption 

patterns, wholesale costs, and retail rates across the country, it is important to consider regional 

differences in electricity prices. For this reason, DOE undertook this analysis at the state level 

(including the District of Columbia). DOE used reported average effective commercial electricity 

prices at the state level from the EIA publication Form EIA-826 Database Monthly Electric 

Utility Sales and Revenue Data.

8 The latest available prices from this source are for the calendar 

year 2013. Table 8.2.11 provides data on the electricity prices. Commercial natural gas prices for 

2013 were available online at EIA’s Natural Gas Navigator website9

 and are shown in 

Table 8.2.12. 
8-19

Table 8.2.11 Commercial Electricity Prices by State (2013 cents/kWh) 

State

Commercial 

Electricity Price 

cents/kWh

State

Commercial 

Electricity Price 

cents/kWh

State

Commercial 

Electricity

Price 

cents/kWh

Alabama 10.50 Kentucky 8.50 North Dakota 8.31

Alaska 15.62 Louisiana 8.94 Ohio 9.38

Arizona 9.87 Maine 11.72 Oklahoma 7.71

Arkansas 7.98 Maryland 10.70 Oregon 8.39

California 14.57 Massachusetts 14.51 Pennsylvania 9.26

Colorado 9.87 Michigan 11.07 Rhode Island 13.08

Connecticut 14.64 Minnesota 9.53 South Carolina 9.82

Delaware 10.26 Mississippi 10.21 South Dakota 8.44

Dist. of Col. 11.93 Missouri 8.72 Tennessee 10.01

Florida 9.49 Montana 9.52 Texas 8.03

Georgia 9.84 Nebraska 8.62 Utah 8.37

Hawaii 34.06 Nevada 9.02 Vermont 14.64

Idaho 7.40 New Hampshire 13.52 Virginia 8.05

Illinois 7.88 New Jersey 12.80 Washington 7.76

Indiana 9.48 New Mexico 9.78 West Virginia 8.16

Iowa 8.47 New York 15.23 Wisconsin 10.84

Kansas 9.54 North Carolina 8.73 Wyoming 8.60

Table 8.2.12 Commercial Natural Gas Prices by State (2013$ per Million Btu) 

State

Commercial 

Natural Gas

Price 

$/MBtu

State

Commercial 

Natural Gas

Price 

$/MBtu

State

Commercial 

Natural Gas

Price 

$/MBtu

Alabama 13.05 Kentucky 9.38 North Dakota 6.99

Alaska 8.54 Louisiana 8.83 Ohio 7.48

Arizona 8.83 Maine 11.68 Oklahoma 11.10

Arkansas 8.34 Maryland 10.63 Oregon 9.05

California 7.87 Massachusetts 10.76 Pennsylvania 11.16

Colorado 8.12 Michigan 8.67 Rhode Island 13.31

Connecticut 8.54 Minnesota 7.33 South Carolina 9.37

Delaware 13.05 Mississippi 7.81 South Dakota 7.12

Dist. of Col. 12.56 Missouri 9.60 Tennessee 9.01

Florida 11.25 Montana 8.90 Texas 7.74

Georgia 10.20 Nebraska 6.81 Utah 7.49

Hawaii 43.36 Nevada 6.88 Vermont 11.92

Idaho 7.53 New Hampshire 12.94 Virginia 9.49

Illinois 9.38 New Jersey 9.83 Washington 9.52

Indiana 8.00 New Mexico 7.29 West Virginia 9.50

Iowa 7.37 New York 8.20 Wisconsin 7.26

Kansas 10.65 North Carolina 9.36 Wyoming 7.19

DOE recognized that different kinds of businesses typically use electricity and natural gas 

in different amounts at different times of the day, week, and year, and therefore face different 

effective prices. To make this adjustment, DOE used the 2003 Commercial Buildings Energy 

Consumption Survey (CBECS)

10 data set to identify the average prices paid by the five kinds of 

businesses in this analysis compared with the average prices paid by all commercial customers.

Eq. 8.6 shows the ratios of prices paid by the five types of businesses used to increase or 
8-20

decrease the average commercial electricity prices. Natural gas prices for specific business types 

are adjusted similarly. 

EPRICECOM BUSTYPE STATE 2013 = EPRICECOM STATE 2013 × �

EPRICEBUSTYPE US 2003

EPRICECOM US 2003

� 

Eq. 8.6

Where: 

EPRICECOM BUSTYPE STATE 2013 = average commercial sector electricity price in a specific business type 

(such as health care, education, and office) in a specific state in 2013, 

EPRICE COM STATE 2013 = average commercial sector electricity price in a specific state in 2013, 

EPRICE BUSTYPE US 2003 = national average commercial sector electricity price in a specific business

type in the 2003 CBECS, and

EPRICE COM US 2003 = national average commercial sector electricity price in the 2003 CBECS. 

Table 8.2.13 shows the derivation of the EPRICE ratios from the CBECS.

Table 8.2.13 Derived Average Commercial Energy Prices by Business Type 

Business Type

Electricity 

Price

cents/kWh

Ratio of Electricity 

Price to Average 

Price for All 

Commercial 

Buildings

Natural 

Gas Price

$/MBtu

Ratio of Natural Gas

Price to Average 

Price for All 

Commercial 

Buildings

Health Care 6.8 86% 6.39 84%

Telecommunications 8.1 103% 8.17 107%

Education 7.4 94% 6.96 91%

Temp Office 8.1 103% 8.17 107%

Gen Office and Retail* 8.1 103% 8.17 107%

All Commercial 7.9 100% 7.62 100%

Source: CBECS 2003. Reported ratios may differ from values computed using prices in the table due to rounding.

*Retail is assumed to include miscellaneous modular building types, including some car dealership showrooms, 

daycare facilities, bank branches, convenience stores, and restaurants.

The derived ratio of commercial electricity prices by business type to the overall average 

commercial building price was then combined with state-by-state commercial rates to derive a 

series of prices for each state and for each business type. Future prices are projected as described 

in section 8.2.3.2. In sampling electricity prices for each business type and state to estimate 

LCCs and PBPs, DOE weighted the prices paid by each business type by their estimated national 

market shares (Table 8.2.14). These shares were based on a combination of SPVU manufacturer 

and Modular Building Institute information. The state weights were the 2012 population shares 

in each state (Table 8.2.15).
8-21

Table 8.2.14 Shares of SPVU Market by Business/Building Type

Business/Building Type SPVAC SPVHP

Health Care 4% 6%

Telecommunications (Shelters Only) 35% 0%

Education 35% 54%

Temporary Office (Construction, 

Mining, and Telecommunications) 16% 25%

General Office and Retail 10% 15%

Total 100% 100%

Table 8.2.15 Population Shares by State, 2013 

State Population 

Share State Population Share State Population Share

Alabama 1.5% Kentucky 1.4% North Dakota 0.2%

Alaska 0.2% Louisiana 1.5% Ohio 3.7%

Arizona 2.1% Maine 0.4% Oklahoma 1.2%

Arkansas 0.9% Maryland 1.9% Oregon 1.2%

California 12.1% Massachusetts 2.1% Pennsylvania 4.0%

Colorado 1.7% Michigan 3.1% Rhode Island 0.3%

Connecticut 1.1% Minnesota 1.7% South Carolina 1.5%

Delaware 0.3% Mississippi 0.9% South Dakota 0.3%

Dist. of Col. 0.2% Missouri 1.9% Tennessee 2.1%

Florida 6.2% Montana 0.3% Texas 8.4%

Georgia 3.2% Nebraska 0.6% Utah 0.9%

Hawaii 0.4% Nevada 0.9% Vermont 0.2%

Idaho 0.5% New Hampshire 0.4% Virginia 2.6%

Illinois 4.1% New Jersey 2.8% Washington 2.2%

Indiana 2.1% New Mexico 0.7% West Virginia 0.6%

Iowa 1.0% New York 6.2% Wisconsin 1.8%

Kansas 0.9% North Carolina 3.1% Wyoming 0.2%

Source: Computed from U.S. Census Bureau, Population Estimates, National Totals, Vintage 2013

http://www.census.gov/popest/data/national/totals/2013/index.html

8.2.3.2 Electricity and Natural Gas Price Trend

The electricity price trend provides the relative change in electricity and natural gas 

prices for future years out to the year 2040. Estimating future electricity and natural gas prices is 

difficult, especially considering that there are efforts in many states throughout the country to 

restructure the electricity supply industry and that there have been recent breakthroughs in 

natural gas supply technology that may affect both natural gas and electricity prices. 

DOE applied a projected trend in national average electricity and natural gas prices to 

each customer’s energy prices based on the AEO201311 price scenarios. In the LCC analysis, the 

following three scenarios are analyzed:

1. AEO2013, estimated High Economic Growth (“AEO2013 High Growth” in 

Figure 8.2.3 and Figure 8.2.4) 

2. AEO2013, Reference Case (“AEO2013 Reference Case” in Figure 8.2.3 and 

Figure 8.2.4) 

3. AEO2013, estimated Low Economic Growth (“AEO2013 Low Growth” in 

Figure 8.2.3 and Figure 8.2.4) 
8-22

The default energy price scenarios used in the main LCC analysis are based on the census 

division energy prices from the AEO2013 Reference Case. DOE extrapolated the values in later 

years (i.e., after 2040—the last year of the AEO2013 projection). To arrive at values for the later 

years, DOE used the average growth rate from 2025 to 2040 to establish prices beyond 2040 for

each price scenario. High and Low Growth cases considered as the supplemental analysis are 

discussed in Appendix 8C. 

 

Figure 8.2.3 Electricity Price Trends for Commercial Rates to 2047

0.085

0.095

0.105

0.115

0.125

0.135

0.145

2019 2024 2029 2034 2039 2044

US Weighted Average Real Cost/kWh (2013$)

Year

Electricity Price Projections

AEO2013 Low Growth AEO2013 Reference Case AEO2013 High Growth
8-23

Figure 8.2.4 Natural Gas Price Trends for Commercial Rates to 2047 

8.2.3.3 Repair Cost

The repair cost is the average annual cost to the consumer for replacing or repairing 

components in the SPVU equipment that have failed. Available data from TSD chapter 5 as well 

as data on repair costs from RS Means CostWorks for similar equipment (small rooftop 

packaged units) suggest that costs for replacement parts used in repair increase as the size and 

the efficiency of SPVU units increases, and that a typical frequency of a major repair is about 10 

years from purchase. A typical repair might involve replacing the supply fan motor, compressor, 

some bearings, and refrigerant. DOE estimated the repair cost for SPVU equipment at the 

baseline level using Eq. 8.7. 

RCBASE = �

(RCAP ABOVE−RCAP BELOW)

(CAPABOVE−CAPBELOW) × (CAPBASE − CAPBELOW) + RCAP BELOW� ∗ ANN 

 Eq. 8.7

Where: 

RCBASE = annualized repair cost for a baseline efficiency unit (including labor, overhead and 

profit) at a given capacity ($), 

RCAP ABOVE = one-time repair cost for the next larger reported capacity in RS Means,

RCAP BELOW = one-time repair cost for the next smaller reported capacity in RS Means, 

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2019 2024 2029 2034 2039 2044

US Weighted Average Real Cost/MBtu (2013$)

Year

Natural Gas Price Projections

AEO2013 Low Growth AEO2013 Reference Case AEO2013 High Growth
8-24

CAPBASE = the baseline capacity in tons,

CAPABOVE = the next larger reported capacity in RS Means,

CAPBELOW = the next smaller reported capacity in RS Means, and

ANN = annualization factor equivalent to the present value of an equipment repair in year 10, 

with an assumed equipment lifetime of 15 years (see section 8.2.3.5). The discount rate for 

the annualization factor is selected based on the business type (see section 8.2.3.6). 

For repair costs at higher efficiency levels as a result of standards, the materials portion 

of repair cost is assumed to increase proportionately with the cost of the more efficient 

equipment, while labor cost is constant: 

RCSTD = RCBASE × PCTMAT × EQPSTD

EQPBASE

+ RCBASE × (1 − PCTMAT)

Eq. 8.8 

Where:

RCSTD = annualized repair cost at the standard efficiency level, 

PCTMAT = percent of base repair cost for materials, 

EQPBASE = original equipment price of the SPVU equipment at the baseline efficiency, and 

EQPSTD = original equipment price of SPVU equipment at the standard efficiency. 

As the components used for higher-efficiency equipment have a higher original 

equipment manufacturer cost, the equation 8.8 yields an increasing repair costs scenario for 

higher-efficiency equipment. Table 8.2.16 shows the annualized values for repair costs. 

Table 8.2.16 Annualized Repair Costs by Equipment Class for Each Efficiency Level

Equipment Class

Annualized Repair Costs for LCC by Efficiency 

Level

2013$/yr

Baseline 

(ASHR

AE)

Level 1 Level 2 Level 3 Level 4

Temporary Offices, General Offices, and Health Care

SPVAC <65 kBtu/h 168 171 174 182 198

SPVHP <65 kBtu/h 168 171 174 182 198

SPVAC 65-135 kBtu/h 213 NA NA NA NA

SPVHP 65-135 kBtu/h 214 NA NA NA NA

Education

SPVAC <65 kBtu/h 198 201 204 214 232

SPVHP <65 kBtu/h 198 201 204 214 232

SPVAC 65-135 kBtu/h 251 NA NA NA NA

SPVHP 65-135 kBtu/h 251 NA NA NA NA

Telecommunications*

SPVAC <65 kBtu/h 171 173 176 185 201

SPVAC 65-135 kBtu/h 216 NA NA NA NA

* Telecommunications shelters are assumed not to be heated, so air conditioning would be 

installed, but not heat pumps.
8-25

8.2.3.4 Maintenance Cost

The maintenance cost is the cost to the consumer of maintaining equipment operation. 

The maintenance cost is not the cost associated with the replacement or repair of components 

that have failed (as discussed in the previous section). Rather, it is the cost associated with 

general preventive maintenance. 

DOE estimated annualized preventive maintenance costs for SPVU equipment from RS 

Means CostWorks data on preventive maintenance for terminal and package units. RS Means

does not provide estimates on the person-hours, labor rates, and materials required to maintain 

SPVU equipment. RS Means does specify preventive maintenance activities for air-cooled 

packaged air-conditioning and heat pump equipment (which has maintenance needs similar to 

SPVU equipment). These activities are expected to occur on a scheduled basis and include the 

following types of actions: cleaning evaporator coils, changing filters, lubricating motors, 

cleaning condenser coils, checking refrigerant pressures and adding refrigerant as necessary, and 

similar activities. Some of these occur more than once a year. DOE assumed that this work was 

done by an outside maintenance contractor. DOE used available single air-cooled packaged unit 

and air-cooled heat pump figures of $311 per year (2013$) from RS Means CostWorks for 

scheduled preventive maintenance activities for all SPVAC equipment classes up to 24 tons 

capacity, $345 per year (2013$) for SPVHP equipment classes up to 5 tons, and $414 per year

(2013$) for SPVHP equipment of larger capacity. 

Data were not available to indicate how maintenance costs vary with equipment 

efficiency level. However, although preventive maintenance costs may vary by size of the unit, 

the activities are about the same, regardless of efficiency level, and should not require 

significantly different amounts of material and labor at different efficiency levels. Therefore, 

DOE decided to use preventive maintenance costs that remain constant as equipment efficiency 

is increased. 

Table 8.2.17 Annualized Maintenance Costs by Equipment Class for Each Efficiency Level

Equipment Class

Annualized Maintenance Costs for LCC by Efficiency 

Level

2013$/yr

Baseline 

(ASHRAE) Level 1 Level 2 Level 3 Level 4

SPVAC <65 kBtu/h 311 311 311 311 311

SPVHP <65 kBtu/h 345 345 345 345 345

SPVAC 65-135 kBtu/h 311 N/A N/A N/A N/A

SPVHP 65-135 kBtu/h 414 N/A N/A N/A N/A

8.2.3.5 Lifetime

DOE defines lifetime as the age at which SPVU equipment is retired from service. DOE

based equipment lifetime on review of available online literature and studies and concluded that 

a typical lifetime of between 10 and 25 years with an average of 15 years is appropriate for most 

SPVU equipment. While references to service life were found in online literature, most 

documents found appeared to reference the American Society of Heating, Refrigerating and AirConditioning Engineers (ASHRAE) generally, and they cited equipment life estimates for similar 
8-26

equipment. ASHRAE indicates about a 15-year service life for a variety of similar heating, 

ventilation, and air-conditioning (HVAC) equipment in the ASHRAE Handbook,12 but appears 

to have no data specific to SPVU equipment. A 2005 ASHRAE study on equipment service life 

found that the median age for 25 air-to-air heat pump units still in operation was 16 years, with 

the oldest at 17 years. In the same study, the maximum age at which 136 units were replaced 

was 17 years. For a sample of packaged direct-expansion (DX) air-conditioning units, out of 32 

units operating, the mean age was 11 years and the maximum age was 24 years. No information 

was available on the end of life because the study did not have end-of-life information.13 An 

Australian study estimated the average life at 10 years for non-ducted air-conditioning equipment 

and 14 years for ducted air-conditioning equipment with a standard deviation of 3 years.14 Based 

on the range of service life information available, DOE established the 10–25 year range and 15-

year average service life estimates for this analysis. 

8.2.3.6 Discount Rate

The discount rate in this analysis is the percentage rate at which future operating costs are 

discounted to establish a present value. DOE derived the discount rates for the SPVU equipment 

analysis by estimating the cost of capital for companies that purchase SPVU equipment. The cost 

of capital is commonly used to estimate the present value of cash flows to be derived from a 

typical company project or investment. Most companies use both debt and equity capital to fund 

investments, so their cost of capital is the weighted average of the cost to the company of equity 

and debt financing. 

DOE estimated the cost of equity financing by using the Capital Asset Pricing Model 

(CAPM).

15 The CAPM, among the most widely used models to estimate the cost of equity 

financing, assumes that the cost of equity is proportional to the amount of systematic risk 

associated with a company. The cost of equity financing tends to be high when a company faces 

a large degree of systematic risk, and it tends to be low when the company faces a small degree 

of systematic risk.

DOE determined the cost of equity financing by using several variables, including the 

risk coefficient of a company (β), the expected return on “risk free” assets (Rf), and the additional 

return expected on assets facing average market risk, also known as the equity risk premium or 

ERP. The risk coefficient of a company, β (beta), indicates the degree of risk associated with a 

given firm relative to the level of risk (or price variability) in the overall stock market. Risk 

coefficients usually vary between 0.5 and 2.0. A company with a risk coefficient of 0.5 faces half 

the risk of other stocks in the market; a company with a risk coefficient of 2.0 faces twice the 

overall stock market risk.

Eq. 8.9 gives the cost of equity financing for a particular company:

ke = Rf + (β × ERP)

Eq. 8.9 

Where: 

ke = the cost of equity for a company (%), 
8-27

Rf = the expected return of the risk free asset (%), 

β = the risk coefficient, and 

ERP = the expected equity risk premium (%). 

DOE defined the risk-free rate as the 40-year geometric average yield on long-term 

government bonds. The risk free rate was calculated using Federal Reserve data for the period 

1974 to 2013,16 with a resulting rate of 6.24 percent. DOE used a 5.81-percent estimate for the 

ERP based on data from Damodaran Online.17

The cost of debt financing (kd) is the interest rate paid on money borrowed by a company. 

The cost of debt is estimated by adding a risk adjustment factor (Ra) to the risk-free rate. 

 Eq. 8.10 

Where:

kd = the cost of debt financing for each firm (%), 

Rf = the expected return on risk-free assets (%), and 

Ra = the risk adjustment factor to risk-free rate for each firm (%). 

The risk adjustment factor depends on the variability of stock returns represented by 

standard deviations in stock prices and was taken from Damodaran Online worksheets for 

individual company cost of capital.

18 The WACC of a company is the weighted-average cost of 

debt and equity financing: 

k =ke × we+ kd × wd 

Eq. 8.11 

Where: 

k = the (nominal) cost of capital (%),

ke = the expected rate of return on equity (%),

kd = the expected rate of return on debt (%),

we = the proportion of equity financing in total annual financing, and

wd = the proportion of debt financing in total annual financing. 

The cost of capital is a nominal rate because it includes anticipated future inflation in the 

expected returns from stocks and bonds. The real discount rate or WACC deducts expected 

inflation (r) from the nominal rate. DOE calculated expected inflation (3.55 percent) over the 

1974–2013 historical period used for the other data calculations. 19

To estimate the WACC of SPVU equipment purchasers, DOE randomly sampled from

companies involved in each of the five types of business that are likely to use SPVU equipment. 

The sample was drawn from a database of U.S. companies given on the Damodaran Online 

individual company worksheet cited earlier. The Damodaran database includes most of the 

publicly traded companies in the United States.

+= RRk afd
8-28

Based on information from manufacturer interviews and periodic reports on the modular 

buildings market from the Modular Buildings Institute cited in section 8.2.2.3, DOE divided the 

Damodaran-reported companies into categories according to their type of activity. DOE used 

financial information for all of the firms in the Damodaran database in five types of businesses

likely to use SPVU equipment. 

Table 8.2.18 outlines the building type and ownership categories as well as the number of 

companies used for determining real discount rates. 

Table 8.2.18 Derivation of Average Real Discount Rates by Business Type

Business Type 

Description

Private State and Local 

Government

Federal 

Government Weighted 

Discount 

Rate

No. 

Obs.* WACC Percent 

of Stock

Muni 

Bond 

Rate

Percent 

of Stock

Federal 

Rate

Percent 

of 

Stock

Health Care 5.81% 100.0% 2.44% 0% 2.59% 0.0% 5.81% 9

Education NA 0% 2.44% 100% 2.59% 0.0% 2.44% NA

Telecommunications 6.80% 100% 2.44% 0% 2.59% 0.0% 6.80% 53

Construction and 

Mining 7.06% 100% 2.44% 0% 2.59% 0.0% 7.06% 195

General 

Commercial, State 

and Local Govt 

Offices and Retail 

6.66% 75% 2.44% 12.5% 2.59% 12.5% 5.62% 89

* Number of observations was not available for government. Typical values for the whole sector were used.

Data in the Damodaran database was representative of the private companies, but lacked 

data on cost of capital for public schools, state and local government, or the federal government. 

A 40-year geometric mean of the Bond Buyer Go 20-Bond Municipal Bond Index of state and 

local 20-year general obligation bonds, available from the Federal Reserve Bank of St. Louis,

20

was used as the discount rate for public schools and state and local government. The previously 

discussed 40-year geometric average yield on long-term Federal government bonds was used for 

the Federal government. Both government rates were adjusted for long-term average inflation 

using the same rate (3.55 percent) that was used for private industry. 

8.2.3.7 Compliance Date of Standard 

As discussed in section 8.1.2, DOE assumed that the final rule would be issued in 2015 

and, therefore, that the new standards would take effect in 2019. For the LCC analysis, the year 

of equipment purchase is 2019. However, all dollar values are expressed in 2013$. 

8.2.3.8 Base-Case Distribution of Efficiency Levels

DOE used data from manufacturer interviews in a previous rulemaking for central unitary 

air conditioning (CUAC) to estimate the market distribution of SPVU equipment in 2012d. DOE 

 

d See DOE’s technical support document underlying DOE’s July 29, 2004 ANOPR. 69 FR 45460 (Available at 

www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0103-0078). SPVUs have only had EER standards 

since 2002, which was not long enough to establish an efficiency trend.
8-29

then used the trend derived from CUAC equipment (EER improvement by 1 unit every 35 

years), to project the base-case efficiency distribution to 2019. Table 8.2.19 summarizes the 2019 

distribution. Details of the market share analysis are shown in appendix 8D. 

Table 8.2.19 Base-Case Distribution of Efficiency Levels for SPVU Equipment in 2019 

Equipment Class

Efficiency Level and EER

Baseline 1 2 3 4

10 10.5 11.5 11.75 12.3

Percent

SPVAC <65 kBtu/h 74.4 24.5 1.0 0.1 0

SPVHP <65 kBtu/h 74.4 24.5 1.0 0.1 0

SPVAC 65-135 kBtu/h 100.0 N/A N/A N/A N/A

SPVHP 65-135 kBtu/h 100.0 N/A N/A N/A N/A

8.3 PAYBACK PERIOD INPUTS 

8.3.1 Definition

PBP is the amount of time it takes the consumer to recover the higher purchase cost of 

more energy efficient equipment as a result of lower operating costs. Numerically, the PBP is the 

ratio of the increase in purchase cost to the decrease in annual operating expenditures. This type 

of calculation is known as a “simple” PBP because it does not take into account changes in 

operating cost over time or the time value of money; that is, the calculation is done at an 

effective discount rate of zero percent.

The equation for PBP is: 

PBP =∆IC/∆OC 

Eq. 8.12

Where: 

PBP = payback period in years, 

∆IC = difference in the total installed cost between the more efficient standard level and the 

baseline equipment, and

∆OC = difference in annual operating costs.

PBPs are expressed in years. PBPs greater than the life of the product mean that the 

increased total installed cost of the more efficient equipment is not recovered in reduced 

operating costs over the life of the equipment. 

The data inputs to PBP are the total installed cost of the equipment to the customer for 

each efficiency level and the annual (first year) operating costs for each efficiency level. The 

inputs to the total installed cost are the consumer’s final equipment price and the installation 

cost. The inputs to the operating costs are the annual energy cost, the annual repair cost, and the 

annual maintenance cost. The PBP calculation uses the same inputs as the LCC analysis 

described in section 8.2, except that electricity price trends and discount rates are not required

because the PBP is a “simple” (undiscounted) payback and the required electricity price is only 
8-30

for the year in which a new efficiency standard is to take effect—in this case, the year 2019, 

expressed in 2013$. 

8.4 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS

The results of the LCC and PBP analysis are presented in this section. Mean and median 

values of LCC savings and median PBP are presented along with a summary of the distribution 

of these values.

8.4.1 Life-Cycle Cost Results

Figure 8.4.1 shows the variation in consumer LCC over the ASHRAE baseline and the 

four higher efficiency levels for the SPVAC <65,000 Btu/h equipment class. The LCC values on 

this chart are mean values obtained from the LCC analysis. This curve is an example to illustrate 

the typical relationship between installation cost and LCC values over all the efficiency levels in 

an equipment class. The installed costs increase steadily from the baseline to the highest possible 

efficiency level and the life-cycle costs decrease from ASHRAE standard level (baseline) to 

Efficiency Level 2. 

 Figure 8.4.1 LCC and Installed Cost Variation over Efficiency Levels for SPVAC <65,000 

Btu/h Equipment Class 

As stated earlier, the LCC savings output obtained from the LCC analysis are in the form 

of distributions. LCC savings distributions are shown for the SPVAC <65 kBtu/h equipment 

class in Figure 8.4.2. Similar plots of LCC savings distribution are presented in appendix 8B for 

all equipment classes analyzed. Table 8.4.1 presents the numerical values associated with the 

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

ASHRAE Baseline 1 2 3 4

Installed Cost Life Cylce Cost
8-31

plot in Figure 8.4.2. Figure 8.4.2 illustrates the mean and median values on the plot with the help 

of red and blue markers, respectively. The elongated large rectangular box represents the 25th

and 75th percentile values. The lower edge of the elongated rectangle represents the 25th 

percentile of the LCC savings distribution, which means that 25 percent of the customers would 

experience LCC losses of $27or more if the standard were set at Level 1, losses of $57 or below 

in LCC savings if the standard were set at Level 2, and so on. The median value of LCC savings 

is equal to the 50th percentile. The upper edge of the elongated rectangle represents the 75th

percentile. The two ends of the vertical black line for each efficiency level represent the 5th

percentile (lower end) and 95th percentile (upper end). 

Mean and median LCC savings for all equipment classes analyzed are summarized in 

Table 8.4.2 and Table 8.4.3, respectively.

 

Figure 8.4.2 LCC Savings Distributions for All the Efficiency Levels for the Equipment 

Class SPVAC <65,000 Btu/h

-2000

-1500

-1000

-500

0

500

1000

1500

1 2 3 4

Life-cycle Cost Savings($)

Efficiency Level

Mean Median
8-32

Table 8.4.1 LCC Savings Distribution Results for Equipment Class SPVAC <65,000Btu/h

(2013$) LCC Savings* 2013

$

Efficiency Level 1 2 3 4

Mean 116 179 (24) (825)

Median (50th

Percentile) 60 79 (193) (1,042)

5th Percentile (94) (183) (631) (1,584)

25th Percentile (27) (57) (440) (1,363)

75th Percentile 227 341 285 (415)

95th Percentile 457 820 1,000 476 

* Values in parentheses are negative values.

Table 8.4.2 Mean LCC Savings for All Equipment Classes and Efficiency Levels

Equipment Class

Mean LCC Savings 

2013$*

Level 1 Level 2 Level 3 Level 4

SPVAC <65 kBtu/h 116 179 (24) (825)

SPVHP <65 kBtu/h 358 424 819 (177)

Table 8.4.3 Median LCC Savings for All Equipment Classes and Efficiency Levels

Product Class

Median LCC Savings 

2013$*

Level 1 Level 2 Level 3 Level 4

SPVAC <65 kBtu/h 60 79 (193) (1,042)

SPVHP <65 kBtu/h 320 350 665 (315)

8.4.2 Payback Period Results 

Figure 8.4.3 presents the distribution of the PBP results for Efficiency Level 1 to 

Efficiency Level 6 of the equipment class SPVAC <65,000 Btu/h. The numerical values 

associated with this plot are presented in Table 8.4.4. The blue marker represents the median 

PBP for each efficiency level. The lower edge of the elongated rectangular box represents the 

25th percentile, which means that 25 percent of the customers would experience a PBP of 

4 years or lower if the energy conservation standard were set at one level above the ASHRAE 

standard (Level 1), 4.2 years or lower if the energy conservation standard were set at Level 2, 

and so on. The upper edge of the rectangular box represents the 75th percentile. The two ends of 

the vertical line represent the 5th percentile (lower end) and 95th percentile (upper end). 

Table 8.4.5 summarizes the median PBPs for all efficiency levels for all the analyzed equipment 

classes.
8-33

 

Figure 8.4.3 Payback Period for All Efficiency Levels for the Equipment Class SPVAC 

<65,000 Btu/h 

Table 8.4.4 Payback Period Distribution Results for SPVAC <65,000 Btu/h Payback period years

Efficiency Level Level 1 Level 2 Level 3 Level 4

Median (50th 

Percentile) 7.9 8.4 14.4 27.3

5th Percentile 2.4 2.5 3.8 6.4

25th Percentile 4.0 4.2 6.9 12.1

75th Percentile 13.9 14.7 27.3 59.8

95th Percentile 28.3 30.3 65.0 266.6

Table 8.4.5 Median Payback Period for All Equipment Classes and Efficiency Levels

Product Class

Median Payback Period 

years

Level 1 Level 2 Level 3 Level 4

SPVAC <65 kBtu/h 7.9 8.4 14.4 27.3

SPVHP <65 kBtu/h 4.1 4.8 6.2 13.6

8.4.3 Rebuttable Presumption Payback Period

EPCA establishes a rebuttable presumption. The rebuttable presumption states that a 

standard is economically justified if the Secretary finds that “the additional cost to the consumer 

of purchasing a product complying with an energy conservation standard level will be less than 

three times the value of the energy savings during the first year that the consumer will receive as 

a result of the standard, as calculated under the applicable test procedure ...” This rebuttable

presumption test is an alternative path to establishing economic justification. (42 U.S.C. 

6295(o)(2)(B)(iii)) 

To evaluate the rebuttable presumption, DOE estimated the additional cost of purchasing 

more-efficient, standards-compliant equipment, and compared this cost to the value of the energy 

0

50

100

150

200

250

300

1 2 3 4

Payback Period (years)

Efficiency Level

Median
8-34

saved during the first year of operation of the equipment. DOE interprets that the increased cost 

of purchasing standards-compliant equipment includes the cost of installing the equipment for 

use by the purchaser. DOE calculated the rebuttable presumption payback period (RPBP), or the 

ratio of the value of the increased installed price above the baseline efficiency level to the first 

year’s energy cost savings. When RPBP is less than 3 years, the rebuttable presumption is 

satisfied; when RPBP is equal to or more than 3 years, the rebuttable presumption is not 

satisfied. Note that this PBP calculation does not include other components to the annual 

operating cost of the equipment (i.e., maintenance costs and repair costs). The RPBPs calculated 

can thus be different from the PBPs calculated in section 8.4.2. 

DOE calculated the RPBPs for the distribution of installed costs and energy prices 

discussed in sections 8.4.1 and 8.4.2, which are representative of the same three building types 

and all 50 states plus the District of Columbia. The RPBP was calculated for each higher 

efficiency level within each equipment class. 

Table 8.4.6 shows the nationally averaged median RPBPs calculated for all equipment 

classes and efficiency levels. 

Table 8.4.6 Rebuttable Presumption Payback Periods by Efficiency Level and Equipment

Class

Product Class

Rebuttable Payback Period 

years

Level 1 Level 2 Level 3 Level 4

SPVAC <65 kBtu/h 4.7 4.9 7.8 13.3

SPVHP <65 kBtu/h 3.2 4.0 4.8 9.5

8.5 DETAILED RESULTS

DOE presents detailed results from the LCC analysis in appendix 8B. Plots similar to 

Figure 8.4.2 and Figure 8.4.3 are presented in the appendix for all equipment classes. In addition, 

summary tables with all the necessary data in one table for each equipment class are presented. 

Table 8.5.1 illustrates with the summary table for the SPVAC <65,000 Btu/h equipment class. 

This table presents the mean values of installed costs, annual operating costs, LCC, LCC savings, 

and median PBP values for all the efficiency levels. It also presents the percentage of customers 

who experience net cost, no impact, and net benefit. The average LCC savings and the 

percentage of customers experiencing a net benefit or cost are based on a distribution of 

efficiency choices. In the base case, not all customers are assumed to be buying equipment at the 

baseline efficiency. Some are assumed to be buying at higher efficiency levels. Customers 

experiencing no impact were assumed in the base case to be already buying more efficient 

equipment, so the efficiency level in question would not affect them. The LCC savings is an 

average of the savings achieved by customers who, in the base case, were buying less efficient 

equipment than the efficiency level examined (shown in the column labeled Affected Customers’ 

Average Savings). 
8-35

Table 8.5.1 Summary of Results of LCC and PBP Analysis for SPVAC <65,000 Btu/h 

Equipment Class 

TSL Efficiency 

Level

Life-Cycle Cost, All Customers Life-Cycle Cost Savings

Payback 

Period, 

Median 

years

Installed

Cost

2013$

Total

Discounted

Operating

Cost

2013$

LCC,

All 

Customers

2013$

Affected

Customers'

Average

Savings

2013$*

% of Customers that 

Experience

Net

Cost

%

No 

Impact

%

Net

Benefit

%

Baseline 

(ASHRAE) 4,795 12,335 17,130

1 1 4,939 12,074 17,013 116 25 26 49 7.9

2 2 5,083 11,839 16,922 179 37 1 62 8.4

3 3 5,546 11,578 17,123 (24) 62 0 38 14.4

4 4 6,407 11,516 17,924 (825) 87 0 13 27.3

* Values in parentheses are negative values.
8-36

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20. Federal Reserve Bank of St. Louis. State and Local Bonds -Bond Buyer Go 20-Bond 

Municipal Bond Index. 2012. (Last accessed February 12, 2014.) 

<http://research.stlouisfed.org/fred2/series/MSLB20/downloaddata?cid=32995>